The Long-Term Effect of Antitakeover Legislation on Shareholder Wealth and Firm Performance: Further Evidence from Pennsylvania Senate Bill 1310

In 1990 Pennsylvania enacted legislation (Senate Bill 1310) designed to make hostile takeover of Pennsylvania firms more difficult. An important provision of SB 1310 allowed firms to opt out of the law's provisions. To determine whether the performance of Pennsylvania firms that opted out is different from those that did not opt out, we examine the stock price and operating performance during the five years subsequent to enactment of SB 1310. In the year after passage of the law we find that the overall performance of firms opting out of protection is superior to those not opting out. Five years after passage, however, we find no significant difference in the stock price or operating performance of the two groups. Thus, we find some evidence that supports the managerial entrenchment hypothesis and no evidence that supports the hypothesis that takeover protection allows managers to increase their focus on long-term value creation.